Questions

If an investor and a founder sign a contract, could they use a neutral country with an appropriate legal system for governing law?

I signed a contract using KISS - it´s a standard template used for early stage startup to receive investments. You can find the contract on the links below. The contract is governed by the law of California however, I, the investor resides in Canada whereas the founder resides in Israel and neither of us have any physical tie to the usa at the moment. Investor location: Canada Founder location: Israel SAFE is another contract that was considered in the negotiation. ** subquestions: ** *1 - Should the contract abides by the country of residence of the investor or the founder? *2 - Could we use SAFE(y-combinator template) or KISS(500 startup template) documents if neither the investor nor the entrepreneur resides in US? *3 - If we used SAFE(y-combinator) or KISS(500) document out of ignorance and sent/received the invesment, is the contract still valid? *4 - if the contract is not valid but the fund were sent/receive, should a new contract be negtotiated and the fund returned to the owner? SAFE contract link: https://www.ycombinator.com/docs/SAFE_Cap_Discount.rtf KISS contract link:https://500startups.app.box.com/s/wxkh7gqyqsfmoxixk7vm I plan on hiring a lawyer. However, I wanted to be better informed and save some $ if possible.

3answers

The contract is governed by the state in which the "Subject" of the contract will operate

If the Subject should change operating location then the governing body changes. This applies to state laws of course, but not federal laws for obvious reasons.


Answered 3 years ago

I would make the contract relevant in the country wherein the the company is incorporated. It will allow you to use the same legal team to resolve any of the issues. You should also only be using one of the "big 5" firms: Greenberg, Cooley, Sonsini, Gunderson etc. They usually have representative offices in most of these countries and you get the efficiency of keeping everything under one roof.

There are many other efficiencies of using these large firms that already service most VCs, funds, startups. They understand the ecosystem, work well together and can give way to strategic business introductions (investment, partnership, acquisition).


Answered 3 years ago

While governing law is important, venue – i.e., where a lawsuit must be filed – is even more important tactically if a dispute arises.
If there is a great disparity in negotiating power between the parties, the one with the greater power is likely to prevail on this issue (and many others).
If a compromise is desired, choose a neutral country (with an appropriate legal system) for governing law and venue.
An approach that will reduce the likelihood of a lawsuit being filed: If one party initiates a legal action, it must be filed in the other party’s country, and that country’s law will govern.

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Answered 3 years ago

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